Richard Alberg talks about Raising Investment
Raising Investment for Small Businesses
Raising Investment is one of Richard Alberg’s special talents. He joined the podcast to explain how small and medium sized businesses should go about raising investment for their businesses.
An expert in job boards and recruitment software and technology, Richard has many years of experience in volume recruitment technology. After selling his previous company, he focused his new company on looking at the challenge of recruitment from the job seeker’s perspective. Not the employer who is thinking about how to attract talent, but from the individual who is saying I’m the right talent, how do I find the right job for me.
A Serial Entrepreneur
Richard suggested he might be a one-trick pony! He’s a serial entrepreneur. Having found something he enjoys doing he has done more than once. He has founded an advertising agency and sold it. Then PSL, a company he founded and sold, and 9 years ago he started MWS Technology. Then 2 years ago started Corndel, an 80 staff business delivering apprenticeship programmes.
This business has evolved from just helping people find the right roles for themselves. The first idea was how do you provide high volume assistance to job seekers? On the basis that when you do anything through human beings, it is inherently expensive, because people’s time costs. It doesn’t scale very well. That’s because the moment you get increased demand you need more individuals with the skills to provide the service. And those skills are not always available. It is also hard to maintain quality.
A Nerdy Technology Perspective – a Tri-Partite Relationship
When you get it right, technology helps you to scale projects brilliantly, Richard says.
They started with the aim of helping unemployed people in 2009. Unemployment was high and growing. MWS supported organisations delivering programmes to help the unemployed find new roles.
They had a try-partite relationship. Someone delivering the service. Another party receiving the service and someone funding the service. Namely the Department of Work and Pensions, DWP. Unemployment is lower. However, vocational training is growing. It has a try-partite relationship too. That fact placed MWS in a good position to serve vocational training with their software too.
They support apprenticeships. There is a different focus between apprentices and students. The former thinks of themselves as employees. The training helps all sorts of training. Training providers use MWS technologies to manage their respective training and vocational programmes.
Training providers might be colleges, universities. Their technology changes the conventional delivery of training. Distance learning. Their customers are Government funded. Therefore they are subject to compliance and managed efficiently at scale.
It is very hard to do well. Technology helps enormously the process of vocational training. Technology doesn’t forget stuff in the same way as human beings do.
With all 3 of Richard’s recent businesses, raising investment has been a major part of his success. All have had VC (venture capital) money.
So, what are the benefits and downsides of venture capital as a means of raising investment?
Why Venture Capital?
You are saying I’m ambitious, but after VC money, you have responsibilities to these investors.
When you are a confident entrepreneur, which you need to be to get up each morning and deal with all the potential things that come your way, sometimes it is helpful to have someone around (as a result of the investment) to ask advice from. They care about their money. They are not as emotionally invested. It is the mindset they have versus yours.
Why not loan finance?
Any lender will typically want to know when the money will be paid back. Most people at the smaller end, will borrow it against their house. The data a loan like that gets called in, is the day YOU least want that loan to be called in.
If your business has failed, do you really want someone to say, ‘now sell your house’.
If you take money for equity, yes, you’ll trade share, but it can help you achieve your mission. For Richard, he needs to fund technology build. And that is expensive. They don’t get to see the revenue until they have built the platform.
In 1999/2000, raising investment was much easier. The dot-com boom. Now, it is far more difficult and rigorous.
Now you have:
- friends and family – backing you.
- angels – a High Net Worth Individual who is taking a punt. Maybe an entrepreneur, who likes the idea and thinks they can back another winner.
- professional investors – driven by tax – EIS, VCT, investing on a professional disposition, accountable to others who have lent them money.
- moonshot investors – those are the investors who would have backed the likes of Facebook, looking for a large return when it is right. An American model of fail-fast.
Know which type of investor you are going after is important.
It can also be difficult
- You can have disputes between VCs.
- VCs can close down, no ongoing funding.
- Tax changes, means that you are not so investable.
- What if you changed your own ambitions – VCs might not back you for the step up.
Richard has not found his VCs have overly interfere. One business that he was involved in, VCs were not happy to sign off on pay rises for some people. Richard had to persuade VCs who didn’t share his view initially. You have to remember there is a quid pro quo.
Venture Capital is different from Private Equity
Private equity is a level above where you already are an established business.
EIS schemes need 3 years to get their tax breaks. So then, investors want out. So most schemes are looking for 3-5 years.
An index return: 4-5x if you are not a moonshot. 3x is hitting their return expectations.
Unicorn chasers – is it a good model?
Typically B2C. The Silicon Valley eco-system attracts talent, but it is a good environment. Similarly, Cambridge – Silicon Fen, and Shoreditch. EIS can make that sort of investing attractive. But ask yourself whether they will come good.
So what does Richard worry about?
Dragons Den – it is different
- they can open doors, which most investors cannot.
- they tend to invest smaller investments, rather than the seven figures Richard has raised.
The Next 100 Days – Raising Investment tips
- Find a mentor. Someone who has raised funds this way before. Guidance to sanity check. Is your pitch coherent? Test the what if? Impact of Brexit. Interest rate rises? Is what you are proposing solid? A coherent plan is 6 weeks.
- Consider professional advice. How much value could the offer. Who else have they done this with?
- Network. Like in London. Not difficult. Free events. Search on google.
- Don’t blow your first few meetings.
- Do you have a team?
- Your pitch – describe why it will work and it is clear to others. If you are complicated, you may not raise money.
- Valuations – this is what someone will put money in at.
- Sell the potential for you and your idea to create something special. Investors are buying a future, not today.
- Do you have a lawyer who you trust. Work out how much you can get help from. A shareholders agreement.
- Some accountants really want entrepreneurs, with relevant experience.Actually, it will probably take you 6 months.Luck is a huge player in this. Do you have connections to wealthy Angels. This may take you longer. Maxim: Everything costs 2x and sales 1/2 your predictions.Investors will remember YOUR promises.
How to Contact Richard
Richard will focus on skills in his next few years. People and his potential. He is also likes the developments in machine learning. The connected world and the facilities you can scale at incredible pace. All this creates opportunities.
But, regulations and competition from around the world present challenges. We think Richard will be one of the winners.